Suntec REIT’s 3QFY2023 DPU down 14.0% y-o-y but up by 3.1% q-o-q

Distributable income from operations fell by 14.8% y-o-y to $46.2 million. DPU from its operations fell by 15.3% y-o-y to 1.595 cents.

According to the REIT manager, the REIT’s DPU was affected by higher financing costs and the weaker Australian dollar (AUD) against the Singapore dollar (SGD). These factors were, however, mitigated by an improvement in the operational performance of the REIT’s office, retail and convention properties.

Gross revenue for the 3QFY2023 rose by 15.0% y-o-y to $123.4 million while net property income (NPI) rose by 9.7% y-o-y to $84.6 million. The higher figures were due to higher contributions from Suntec City Office, Suntec City Mall and Suntec Convention as well as The Minster Building in London. These were offset by higher maintenance fund contribution and commencement of the REIT’s sinking fund contribution in 2023 and lower contribution from its Australian portfolio.

Joint venture (JV) income fell by 20.4% y-o-y to $23.8 million as the stronger operating performance at its properties in Marina Bay Financial Centre (MBFC) and One Raffles Quay were offset by higher interest expenses.

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Rent-free incentives for lease renewals, higher rent relief for retail tenants and higher interest expense at Southgate Complex in Melbourne, as well as the weaker AUD impacted the REIT’s JV income negatively too.

During the quarter, the REIT’s office portfolio saw a committed occupancy rate of 97.4% while its retail portfolio had a committed occupancy rate of 97.9%.

Portfolio weighted average lease expiry (WALE) for its office assets stood at 4.3 years while its retail assets’ WALE stood at 2.2 years.

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As at Sept 30, Suntec REIT’s aggregate leverage ratio increased by 0.1 percentage points q-o-q to 42.7%. Its adjusted interest coverage ratio (ICR) fell by 0.1x to 2.0x.

“The operating performance of our portfolio improved, in particular, the convention business whose recovery is ahead of schedule. However, high interest rates and energy costs continue to impact our distribution income. Suntec REIT’s continual improvement in the areas of environmental, social and governance (ESG) reflects our commitment to growing our business responsibly while delivering long-term value to our stakeholders,” says Chong Kee Hiong, CEO of the manager.

Suntec REIT attained the highest GRESB 5 Star rating for the fourth consecutive year since its inaugural participation in 2020. Suntec REIT was also awarded an ‘A’ for its public disclosure. GRESB stands for Global Real Estate Sustainability Benchmark.

Looking ahead, the REIT manager believes that Singapore’s MICE (or meetings, incentives, conferences and exhibitions) industry will continue to drive and benefit the country’s tourism recovery.

“The convention business recovery is ahead of schedule and future growth will be driven by international, domestic and consumer events,” says the REIT manager.

In Australia, the manager is expecting to see a slowdown in leasing momentum amid macroeconomic uncertainties. Office vacancies in Sydney’s and Melbourne’s central business districts (CBD) are expected to increase from slowing demand and onstream supply. In Adelaide, significant new supply in the fourth quarter of 2023 is also expected to increase vacancy in the office market. A

“Although the portfolio occupancy is expected to remain above market level, revenue for the Australia portfolio is likely to be lower due to leasing downtime and incentives,” says the manager.

In the UK, the REIT manager notes that good quality assets in prime locations are still sought after despite the economic challenging impacting the UK office market. That said, it expects revenue for its UK portfolio to be impacted by leasing downtime.

Units in Suntec REIT closed 2 cents lower or 1.75% down at $1.12 on Oct 20.